24 GRC Professional • Summer 2013
IN DEPTH
and seventies and a lot of this infrastructure has
been nearing the end of its life.
"At the same time as the spike in cost of capital,
we've seen stricter reliability standards set by state
governments in NSW and Queensland. Many
argue the reliability standard setting has been done
in a fairly prescriptive way. But in Queensland this
is under review right now --- the networks need
greater flexibility."
Roberts says 23 per cent of South Australia's
annual power consumption, is used in just 23 peak-
demand hours.
"Networks are being upgraded to cope with
those relatively few peak demand hours to meet
reliability standards," he says.
"This is the 'gold plating' that has been
mentioned in the media. It's an easy target, but
networks are happy to guarantee power as long
as people are happy to pay for it --- and research
shows us that most customers are more interested
in reliability than savings if the other option is time
without power."
The good news, Roberts says, is that
re-investment in poles and wires has peaked and
a new, lower cost of capital is beginning to wash
through the system. With reliability standards
under review in Queensland, he says the process
should provide a less prescriptive and more
consultative approach for network operators in
the future.
Governance failures
But specialists say this is not enough. Governance
failures that led to the recent dramatic price
rises must be resolved. These include those by
state gover nments (that some say have acted in
self-interest rather than in the interest of their
constituents) and Commonwealth and State
government legislators, who left the AER
hamstrung by a lack of strict rules and teeth.
The regulator's intention wa s to look after the
interests of consumers, but instead there is an
inefficient system that punishes consumers with
heavy costs.
The Productivity Com mission's report,
'Electricity Network Regulator y Frameworks',
released in October 2012, blames spiralling
network costs for the price increases. But it says
the network businesses should not be blamed for
the present inefficiencies.
Instead a "fundamental, nationally focused,
package of reforms that addresses the major,
interlinked regulatory barriers to the efficiency
of electricity networks" must be developed. In
doing so, the regulator y regime should once
again consider its overarching objective to be the
long-term interests of electricity consu mers, the
report says.
The Productivity Commission also argues
that state-ow ned network businesses should be
privatised, as most of the evidence appears to
Prices began to
move up very
sharply as a
result of the
infrastructure
upgrade
costs and
higher allowed
financing costs.